CNS News reports that the Congressional Budget Office projects a $45 billion deficit for Social Security in 2011, and a $547 billion deficit over the following ten years.
To be precise about this, that does not mean that Social Security is "broke," it means that Social Security will be spending more than it's taking in. Such a process will *eventually* lead to Social Security going broke, but not just yet.
Now there are lots of smoke and mirrors approaches to discussing this problem, and for whatever reason many do not want to concede that the immediate crisis - indeed the problem for the next 25 years - is not due to Social Security itself, but to wild spending sprees by various Presidents and Congresses over the years, using $2.5 trillion of Social Security revenues as pocket money and issuing Treasury bonds to Social Security in return.
You will have heard that Social Security is a Ponzi scheme, and indeed it is, but had not previous Presidents and Congresses spent the money as fast as it came in, the Ponzi scheme could have sustained itself for another 25 years.
2011 is critical because it is the first in a projected string of years in which Social Security payments will exceed Social Security revenues, and what this means is that the federal government will now have to make good on the money it borrowed from Social Security to fund the spending binges.
It's as if your grandparents, your parents, and then you put money into a savings account from 1937 through last year and then you decided to spend the savings over the next 25 years. You went to the bank and your savings account consisted not of your money but a bunch of IOU's issued by the bank. Well, that's OK, let the bank make good on the IOU's and there will be no effect on you. But . . . the bank says "We don't have the money. We can pay the IOU's only by borrowing."
The bank has encountered a crisis alright, but it is not the fault of your savings or your intent now to spend those savings. It is the fault of the bank because it used that money.
Some will say that "shifting the blame" (more precisely, properly attributing the blame) and transferring the debt to the Federal government doesn't "solve the problem."
No, it doesn't. But on the matter of why there is a problem we should be crystal clear: our government borrowed and spent money irresponsibly, and the bill is coming due.
Comments
If social security is paying out more than it is taking in and the "trust fund" is spent how can you say social security is not broke??
Actually the problem IS due to social security the way it was set up rather than government overspending...not that government spending is not a problem which hamper the ability to pay back ious but it is the way SS is set up which is the actual problem and which makes it a ponzi scheme
Also your example is a little off...the better example would be that your grandparents set up a savings fund for you where they automatically deducted from their paychecks/ SS checks or other source of income a certain amount each month but then they immediately transferred that amount into their checking account which they then spent. They did promise to repay the amount and have kept track of it but right now they owe more on their own debts..credit cards etc then they take in and really cannot pay it back.
Good morning, Smerls.
"If social security is paying out more than it is taking in and the "trust fund" is spent how can you say social security is not broke??"
As the article says, if it had the $2.5 trillion which belongs to it, it wouldn't be broke." The trust fund isn't actually broke, it has the Treasury bonds.
The problem is that the federal government is broke and politicians would like to find a way around paying the $2.5 trillion it owes Social Security.
If SS had $2.5 trillion in cash instead of bonds, it would have 25 years to reach the "broke" point. I'd like to say that this would be plenty of time to make the adjustments necessary to fix it, but knowing our politicians, it would only postpone the moment for 25 years.
Thanks for commenting.
Ken
Ken,
Thank you for responding. The problem with your analysis and most folks who believe social security is not broke is that they view Social Security and the government ie the treasury as separate entities. If they were separate entities then what you are saying would be true..the problem is they are not...they are all part of the federal government. These are different accounts within the government and the IOU's in SS "trust fund" may be legally binding but it is all one entity..the U.S government and since as you say the government is broke then SS is broke.
Think of it this way were is the money going to come from to pay off the IOU's??
Once you realize this it becomes clear why social security is bust.
Good afternoon, Smerls. Just got back from a pizza lunch with some former IBM colleagues.
How about this:
Suppose that today you began spending more money than you had coming in, but your assets included $2.5 trillion in Treasury bonds. Would you say you were broke?
Nope.
And Social Security has $2.5 trillion in Treasury bonds.
But the main thrust of my article was, or at least was intended to be, that it is not Social Security that has caused the existing problem. If the government had not spent irresponsibly the $2.5 trillion it "borrowed" from Social Security, it would not now have to come up with that money and there would be no problem.
For sure a problem would be forthcoming with regard to Social Security, because projections are that in 25 years it will have used up its $2.5 trillion.
Best,
Ken
Continue reading on Examiner.com: Social Security $45 billion in the hole for 2011 - National Legislative Watch | Examiner.com http://www.examiner.com/legislative-watch-in-national/social-security-45...
Hi Ken,
Hope you had a good lunch!!.
Probably the last comment..don't want to keep dragging this out but when you say..
"Suppose that today you began spending more money than you had coming in, but your assets included $2.5 trillion in Treasury bonds. Would you say you were broke?""
No, I would agree with you that I was not broke.
However it is a wrong analogy!!
How about this.. would you say you were broke if instead of treasury bonds you contributed to your 401k each month but then turned right around and took that money out to make up the difference??
Notice, that you would be required to repay your 401k but where are you going to get the money to pay back your 401k from or at least pay off the rest of your bill while you are paying back your 401k??
Notice that in your analogy the that bonds that I own are due to me by a separate entity..in this case the U.S government, I don't owe the bonds to myself.
With social security however the government owes itself, they are the same entity.
Don't you think that makes a difference, or are you saying Social Security is not part of the US government??
I agree with you that out of control spending is a major problem and will hamper the governments ability to meet its SS commitments which if it did not occur there would not be a problem but this is more about how SS was set up as it is about out of control spending and to say social security is not broke is off base!
Pfffft.
Ah ha ha ha ha ha.
Something that I found interesting in the omission. This is the first year since President Reagan raised SS withholdings that we reduced it almost to 1970's levels. Didn't the tax deal include a 2% reduction to SS? and wouldn't you think that this reduction might impact projected revenues for the program?
Having said that - I don't necessarily disagree with a lot that you said - but - that tax cut is a big elephant in the room that was ignored. I don't know how much that would be but it wouldn't be interesting to see what the number would have been sans the tax cut (a real genuine undisputable tax cut)
Re-read the article and I'm very certain the tax cut was not addressed.
Hi Lg.
Prior to the tax cut employees paid 6.2% of their wages into Social Security and employers paid a matching 6.2 %.
The tax cut reduced for one year the employee payment to 4.2%, leaving the employer portion unchanged.
So now employee and employer combined will pay 10.4% of wages to Social Security instead of 12.4%.
Put differently, employee and employer combined will pay about 16% less into Social Security this year than they would have without the tax cut.
I haven't seen the anticipated dollars for either scenario, but in any case yes, Social Security will take in 16% fewer dollars.
Ken
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